About the Inevitable Debt Crisis

As recently as 5-7 years ago, warnings by a few experts about the risk of high US public debt were considered to be something of a bad tone. Such experts themselves seemed alarmists, shouting about a non-existent danger. Serious economists with a condescending grin explained that the US economy is able to absorb any amount of debt, because the status of the main reserve currency guarantees endless demand for dollars.

However, it turned out that in this case "any" has quite tangible boundaries. Today, not only economic theorists but also business practitioners talk about the risk of excessive debt.

At the same time, real actions to limit public debt are not taken and are not even discussed. At best, there are debates about a certain limit to growth.

From the everyday logic point of view, the situation is quite understandable: if you constantly take loans, sooner or later, there will be a limit. There is an obvious balance of income and expenses, expenses can be tried to compensate with new loans, but the cost of loan servicing increases. In an era of low near-zero inflation, it was relatively comfortable to pay interest, interest rates have now jumped, and this is becoming problematic.

BlackRock CEO Larry Fink is a person who cannot be called an alarmist or suspected of being in a hype. BlackRock is a completely system company, one of the foundations of the American, and even the global economy.

In an annual letter to shareholders, Fink noted that the problem of US public debt requires urgent solutions.

Monetary authorities simultaneously faced high external debt and high inflation. And this makes it harder to fight inflation - the classic method of raising interest rates immediately raises the cost of debt servicing.

However, Fink remains optimistic that the acute phase of the debt crisis is not inevitable; his recipe is to invest in infrastructure, especially energy.

This is acceptable, but only on one condition - a fundamental change in economic policy. Is it possible?

Imagine now, the US federal budget is $1.7 trillion at $6.13 trillion. Will anyone believe that the US authorities are ready to give up 28% of the budget spending?

That’s why I can’t be as optimistic as Mr. Fink. I do not believe that in the foreseeable future politicians can agree on adequate economic policies. Consequently, debt will only increase, making it more difficult to attract new borrowing and making it easier for donor countries to invest in their economies. The main problem of today’s centralized economy is the need to make subjective decisions. Any solution must take into account the interests of different elitist groups and therefore cannot be optimal for the whole economy. And this leads to the conclusion that we are faced with a fundamental problem in today’s economy.

Fundamentality means that the problem cannot be solved in the existing system. The build-up of the debt problem is inevitable, and it can only be resolved through a crisis. The issue is it possible to avoid debt-like crises? The crisis is an inevitable part of the modern economy. And that is normal. It is not normal that crises are accelerated by subjective decisions. Excessive public debt is an example of such subjective decisions.

The only way to combat this is to change the economic paradigm and go away from centralized governance. Decentralization is the only tool capable of managing such complex systems.

Unfortunately, however, decentralization is not able to correct the current situation. It is rather a process of moving towards normality. Yes, there will be a crisis, hopefully it will not reach catastrophic proportions. But it will pave the way for the construction of a new, healthy, decentralized economy.